| BANKRUPTCY LAW AND
THE INCOME TEST
New bankruptcy laws went into effect in October, 2005. The new laws
force certain higher income persons into a 5 year partial repayment
bankruptcy (called a Chapter 13), rather than allowing a no payment
Chapter 7 consumer bankruptcy, which takes only 3 to 4 months.
Higher income is defined as income over "median income." In
Alaska (as of 11/1/18), median income is as follows:
Size of Household Total Household Income
+$8,400 for each additional household member.
These figures are updated by the U.S. Census approximately every
six months - THESE NUMBERS WILL CHANGE. Income includes
employment income, gifts, retirement distributions, some sales of
assets, and permanent fund dividends (not including kids’ PFDs).
We have to obtain 6 months worth of pay stubs (or a summary from
employers) - we add the gross income for six months and add in
other income (for instance a $4,000 retirement hardship withdrawal)
and divide by 6. This number is then multiplied by 12 and compared
with the figures above. This is much more complicated that it looks -
you need an attorney for this process. Be careful, however, of pulling
retirement to pay bills before you see an attorney - you may put
yourself over the limits for a simpler bankruptcy.
The definition of Household is a somewhat gray area - significant
others can make this a very difficult determination. Again, you need
an attorney. With respect to children, I look at the split of physical
custody and who claims the children on taxes. If you have visitation
(weekends and summer, for instance) that child is not likely to count
as a household member even if you are paying significant child
support. If you have physical custody of the child 3 days a week, that
child is likely to count as a household member, if you are claiming
him or her on your taxes.
If you are over the above median income, then a several page
analysis begins - this is a combination of real expenses and IRS
standard expenses. If you have a lot of secured debt (mortgages,
cars), child support obligations, or high uncovered medical/dental,
you may still avoid the 5 year bankruptcy. What you pay back in a 5
year bankruptcy is NOT NECESSARILY ALL OF YOUR DEBTS.
The payment depends on the several page analysis. Some people
are paying back a very small amount - $100 or $200 a month over 5
years, plus PFDs (adults only); others are making larger payments
(depending on secured debts, child support, and uncovered
Income testing has become even more complicated due to decisions
handed down by the various bankruptcy courts in the past few years.
Seeking the advice of an experienced bankruptcy attorney is
|LAW OFFICES OF JENNIFER L. HOLLAND